Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:• A US company has bought a machine worth 3 million euros from a German manufacturer with
payment due in three months. The treasurer finds that DeutscheUSA (a fictitious name), a large
commercial bank, bids euros for $1.5000 and offers euros for $1.5010 in three months' time. He
readily agrees and locks in that price.
Suppose DeutscheUSA would like to hedge its trade. It finds that a German importer hoping to
buy 2 million euros worth of computer parts from the United States in three months' time. They
also agree to trade.
What is DeutscheUSA's profit and risk exposure after three months' time?
O a. A profit of 1,000 US dollars plus risk exposure on 2 million dollars.
O b. A profit of 2,000 US dollars.
O C. A profit of 2,000 US dollars plus risk exposure on 1 million dollars.
O d. A profit of 2,000 US dollars plus risk exposure on 1 million euros.
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